German factory orders unexpectedly declined for a second month in May in a sign that the euro area’s struggle to emerge from its longest-ever recession is disrupting the recovery in Europe’s largest economy.

Orders, adjusted for seasonal swings and inflation, dropped 1.3 per cent from April, when they fell a revised 2.2 per cent, the economy ministry in Berlin said today. Economists had forecast a gain of 1.2 percent, according to a Bloomberg News survey.

Orders slid 2 per cent from a year ago, when adjusted for the number of working days.

European Central Bank president Mario Draghi said yesterday that the risks to the euro-area economy are to the downside as he gave "unprecedented" forward guidance that interest rates will stay low for an extended period of time.

The economy in the currency bloc, Germany’s biggest export market, contracted in the six quarters through March. Mr Draghi reaffirmed his prediction for a recovery at a subdued pace later this year.

"German industry still has difficulties to return to full strength," said Carsten Brzeski, senior economist at ING in Brussels. "Still-reasonably filled order books should ensure a gradual pick-up in industrial production. However, the medium- term outlook is not yet looking rosy."

Chancellor Angela Merkel, who is seeking a third term in German elections on September 22nd, met fellow European leaders in Berlin yesterday for talks on easing the impact of austerity on the euro area. Officials focused on measures to reduce youth unemployment, she told reporters.

Germany’s domestic orders declined 2 per cent in May from the prior month, today’s report showed. Overseas demand shrank 0.7 per cent, with orders from the euro area slumping 3.9 per cent.

Orders for basic goods fell 0.1 per cent from April, while investment-goods orders slid 1.8 per cent. Demand for consumer goods dropped 3.1 per cent, with orders from the euro area down 5.7 per cent.

“The development of industrial orders in the last months has been volatile,” the German economy ministry said in a statement. “Excluding bulk items, orders are showing an upward trend, albeit less clearly than before. The basic trend for orders remains positive and should remain a pillar of support for industry.”

Bloomberg